Recently, the Ethereum network finalised the ERC-721 interface standard for Non-Fungible Tokens (NFTs). This standard lays out a protocol for the exchange and ownership of this new class of assets. An extremely simple explanation of the ERC-721 standard is as follows:
A blockchain is a decentralized ledger. It can contain things called smart contracts, which are like little computer programs. A smart contract can implement the ERC-721 interface, which means that it keeps track of variables called Non-Fungible Tokens (NFT). Each token has an owner, a unique identifier, and can be traded to other people. Each token can also include metadata information about the object it is representing.
While the standard had been considered for over 2 years with initial experiments like CryptoKitties, its finalization coincided with a rapid expansion of NFT tokens and markets for trading those tokens.
And people are pissed. [1] [2] [3] [4]
If you ask people why they are pissed, they will likely tell you that it has to do with the large amount of electricity used to power global cryptocurrencies. But this is a somewhat puzzling response. Surely, if your issue is with greenhouse gasses and environmental damage, criticism should be directed towards things like using fossil fuels to generate that electricity. It seems like a general problem of production, not a specific problem of demand. The total energy usage of all computer processing on earth dwarfs the amount dedicated to mining blockchains, but I doubt that many of the people arguing that NFTs are wasteful and shouldn’t exist would extend their opinion to all processing costs.
Intuitively, we might imagine that the issue here is that people perceive the use of electricity as “wastage” and therefore not worth the negative environmental impacts of other, more justified usages. However, I’m not sure that many people who propose this evaluation would support its inverse implication—that there are uses of fossil fuels to generate mains-grid electricity that are non-problematic and worth the environmental damage, given the option of renewables.
There is, in my opinion, also an element of bandwagoning. Many people have soundly placed cryptocurrency within the “bad thing” box, perhaps more have heard the “miner” lingo with its anti-environmental subtext, and so they have gathered a bunch of normative beliefs together without really forming a coherent model of what they’re making ethical judgements about.
Did you know that the US energy grid wasted 67.5% of the energy produced in 2019?
Now, that’s not to say that we should be holding the grid to any perfect standard, and this level of rejected energy isn’t remarkable for a developed nation. But it does imply that we have a huge amount of optimization to address through building smarter electricity grids, building more optimized energy markets, and rolling out innovations like smart-meters and battery storage. And yet this vastly greater level of wastage does not evoke nearly as large an emotional or verbose reaction from the general public.
It seems that the intensity of this response is generated by the strong disagreement in different people’s valuations—some people perceive these nascent “trading-card” NFTs to be worth millions, whereas others consider them to be inherently worthless. In my opinion there is a speculative bubble surrounding these early-adopter “trading-card” assets, but at the same time the ERC-721 standard will generate an extraordinary amount of functional value going forward. But it seems curious that this perception of ownership value transfers to resource consumption valuation.
There’s definitely something funky happening here in how people perceive these different environmental costs. Thoughts?
The strength of the reaction is, I think, mostly due to its being situated among artist communities, who tend have a very strong, swift moral consensus formation process and a fairly strong voice.
Artists see themselves as adepts in the plane of narrative, anthems, banners. Ethereum’s power consumption is funded, primarily not by transaction fees from real commerce, but by speculation and the minting of mining rewards. These things only have force because a narrative has been constructed where the network has value. Artists are aware that their participation would be constructing a large portion of the value attributed to the ethereum network, far out of proportion with the costs of the transactions involved, they would be selling the network legitimacy and narrative force. The consequences of their actions would be very real.
I think they’d mostly say that the sustenance of human lives under modernity (running hospitals, etc) is necessary and that the side effects of living normal lives (transport emissions, food production emissions, whatever ya gotta do to pay rent) is at least understandable and forgivable, while inventing this new category of emission is something very different.
The ones standing at the epicenter of the reaction do all know that there is a lighter alternative to Proof of Work, they know that it really is unnecessary, that most of this is all a consequence of running fast and breaking things and that there is yet little else to show for it.
They know about Proof of Stake, but you wont ever hear those people singing enthusiastically about Proof of Stake, because they have no enthusiasm for anything in the space. I think you’re right about “Many people have soundly placed cryptocurrency within the “bad thing” box”. When genuinely good applications start to emerge, these folks will be slow to notice, but I find that totally understandable: So far, despite all of the innovation and all of the investment, I’m not aware of a single application (other than remittance) as of early 2021, that’s doing any material good for the world, I only see speculation, experimentation and foundation-laying, so far. I’m not saying there really aren’t any good applications, it’s noteworthy just to say that not a single one has found its way to me. Very soon I think some genuinely good things will start to emerge in the Cardano ecosystem, and although they are very real plans (banking the unbanked, building identity/credit score systems in the developing world), and I have complete faith that they’ll come to fruition, they’re still just plans, there isn’t anything I could show to one who was angry about what has passed so far, that would calm them.
Thanks very much for your thoughtful reply MakoYass, I agree with everything you’ve said here. It’s certainly a strange line to straddle personally, where I’m totally on-board the crypto train but also a radical environmentalist. But I also look forward to speculation being ripped out of the crypto ecosystem as much as possible and replaced with functional value. One day soon, we can hope.
NFT’s don’t cost a lot of Ethereum for a good reason. They cost a lot because Ethereum is slow in adopting proof-of-stake.
I think it’s very valid to argue that instead of deploying NFT technology Ethereum should have first moved to proof-of-stake.
Using outdated proof-of-work technology instead of more modern technology is wasting energy, the same way that using the old lightbulbs that need more energy then the newer more efficient one’s is wasting energy.
That doesn’t matter as electricity is something we want to consume 365/7/24. It would only matter if mining would stop whenever the electricity production is relatively low but that’s not how the mining pools operate.
While it’s possible that such technology can be used to optimize the energy marked it doesn’t imply that the technology is enough or cost-effective (it’s also possible that the problem is week to week or month to month energy flucutations).
You’re right that a negative affect to NFTs in particular / blockchain stuff in general is part of the reaction, but I don’t see the reasoning error in
“<X> causes greater electricity consumption;
on the margin, greater electricity consumption currently causes <more pollution / finite resources to be consumed faster / more birds to die due to windmills / …>, which is bad;
this is a downside to <X>.”
It’s probably the case that NFTs do not directly cause greater electricity consumption, but NFTs do plausibly indirectly cause greater electricity consumption, e.g. via making Ethereum more valuable, thus increasing mining rewards, thus increasing competition.
Thanks for your thoughtful reply, Joachim!
I am definitely not saying that NFTs are not bad for the environment—they are, as is anything that draws on the mains grid and creates demand. It is absolutely correct to judge cryptocurrency negatively, just as it is correct to judge things like driving a gas guzzler or flying 20 times a year. But it seems like we completely ignore some ways in which the energy we produce is wasted, and hyperfocus on others, and we just end up with a completely screwed up valuation of what needs changing.